Thursday, November 11, 2010

The Deficit Commission

Everybody knows that any serious proposal to reduce the debt is going to involve a combination of spending cuts and tax increases, right? Right?

Why then does President Obama's Deficit Commission test balloon expect to "Broaden base, lower rates, and bring down the deficit" by bringing taxes well below their already historic lows?

For some perspective, the government could bring in almost $700 billion in revenue by allowing the Bush tax cuts on the rich to expire. Keeping the tax cuts on the books would cost that and more besides:

The cost of those tax cuts is going to go straight onto our national credit card unless we raise taxes from everyone else to pay for the $690 billion in tax breaks for the rich or we find $690 billion in spending cuts. And that means increased interest payments on the debt. When we add in the costs of additional debt service, the true price of maintaining the tax cuts for the wealthy jumps by almost $140 billion.** In total, keeping those cuts for the rich will cost almost $830 billion over the next 10 years.

To put that figure in perspective, $830 billion is enough to pay for all veterans’ hospitals, doctors, and the rest of the Veteran’s Affairs health system, plus the United States Coast Guard, plus the Food and Drug Administration, plus the operation and maintenance of every single national park for the entire 10-year period—with more than $100 billion left over.

Among the proposed spending cuts are $4.6 billion of growing foreign aid growth (even though foreign aid is and historically has made up a little less than one percent of our total budget), and plans to end in-school interest subsidies. Also:

[T]hey’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

Taxes in themselves should not be controversial. But they are. That's a problem, and it makes for deeply problematic proposals on tackling the budget.

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